Jan 132011
Piggy Bank

Gerry Harvey’s and Bernie Brooke’s Fair Go for Retailers campaign drawing attention to the GST treatment of online overseas purchases is part of broader battle being fought around the world between multinational corporations, governments and small business. How it is resolved is going to affect all of us.

Last week, while Australians were focused on their major retailers campaigning for changes to GST rules, Internet retailer Amazon wrote to its Illinois affiliates warning that should the state legislature pass a law imposing sales tax on Internet purchases, the company would cut off their partners in that state, just as they already have in Colorado.

The actions of the Colorado state government, the Illinois proposal and Amazon’s ruthless response are just the latest phase in a longer term struggle between borderless online retailers and those governments, and businesses, limited by their physical locations.

What’s making this particularly acute in the United States is state governments are struggling to balance their budgets and sales tax is the one of the few avenues they have to raise revenues in an economy where incomes and property markets continue to stagnate, if not fall outright.

That balancing act isn’t just confined to the US, the UK government has increased VAT rates from the beginning of the year for the same reason and is facing discontent over increasing tax burdens, particularly on fuel prices.

For the moment the UK government and customs authorities seem to be fairly relaxed about the leakage of VAT income that has seen some British supermarket chains shipping online orders from their Channel Islands branches to avoid local taxes in the way Gerry Harvey and Bernie Brookes proposed last December when the floated the proposal to move their online stores offshore.

The British public hasn’t shared their government’s sanguine response with organisations like UK Uncut blockading stores accused of dodging taxes or owned by alleged tax avoiders.

Governments aren’t the only ones affected, while in Australian it’s the retailers who are publicly worried about their loss of sales at present, other sectors, particularly those providing business to business services, are even more at risk.

Last month The Economist described how US law firms are seeing high margin but relatively low skilled work moving offshore to India and it’s likely those contractors are offering similar services to Australian law firms and corporate clients.

Online bidding sites such as Freelancer.com, O-desk and 99 Designs are offering almost every business support service imaginable, from virtual offices to logo design. Anyone competing locally against foreign contractors on those sites starts from exactly the same GST disadvantage as Harvey Norman, Myer and the local shoeshop.

The power of international retailers and service providers like Google and Amazon to avoid taxes and deliver lowest cost products to customers are challenges to both businesses and governments.

Julia Gillard’s and Bill Shorten’s almost condescending responses to the retailers shows the politicians are somewhat more in tune with the public mood than the retailers. But we can be sure that should the porridge in Australia’s Goldilocks economy start going cold, then Treasury will start looking for those lost GST dollars.

While we can criticise Gerry Harvey, Bernie Brookes and the others behind the “Fair Go for Retailers” campaign for being out of touch and failing to respond to obvious threats to their markets, most businesspeople – and politicians – shouldn’t think for a moment they are immune from the same forces the retailers are complaining about.

Few of us, whether we run businesses or not, will be untouched by these forces realigning the global economy. We all need to understand what these changes mean to our livelihoods and investments, lest we get caught out like Australia’s big retailers.

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